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Have we ruined an entire generation?

As most of you know, affordability is always at the top of my mind. Especially here in Reno, where we’ve seen it change so dramatically. This is true of many markets around the country of course, due to interest rates and home prices. BUT, here in Reno – we don’t like change, do we? And we tend to get really grumpy about density at the same time that we’re really bad about the price of housing. We’re kind of silly like that. Silly like having golf courses right in the center of the city when the lack of houses is a huge component of why houses cost so much. Don’t get me wrong, I live near one of the TWO golf courses that are literally in the same zip code which is a central zip code of Reno – they’re beautiful but sometimes – just sometimes I wonder how many houses could be built there and while these homes would most definitely not be low-income housing you cannot argue that more inventory helps bring down the cost of a good….

But I digress.

In talking about affordability, Millennials often come up. They – or should I say we because although this year has aged me 20, I’m actually an elder millennial myself – we’ve had a hard go. We graduated college in the Great Recession, we likely saw many loved ones lose homes and jobs during that time. As we were really gaining traction financially, the pandemic hit and changed everything on us again. People talk about Millennials a lot, with good reason because we are the largest demographic of homebuyers and consumers in the marketplace as a whole.

People also talk about how we have different priorities. We waited longer to have children, to buy homes. The consensus seems to be that we value experiences over possessions. Many millennials would rather rent to maintain a certain quality of life than live somewhere they don’t want to just to achieve homeownership. It’s pretty interesting on the whole to watch how different this generation is.

Now, to pivot, but just momentarily…

In predicting what’s going to happen with the economy, a recession and interest rates – many economists have been looking at historical trends. Which really screwed us all. If we looked at what happened in previous economic cycles, at this point inflation should have been under control and interest rates should have been cooling down to the 5’s. The problem is that we can’t look at history to help us now, because we’ve never been here before. We’ve never had the Fed play such an active role in the marketplace for over a decade. You see the Fed didn’t start stimulating the economy in 2020 during the pandemic. They started in 2009 during the Great Recession. They’ve held interest rates down for well over 10 years and at several points during that decade also handed out free money.

If we are going to be technical, there have been 4 periods of Quantitative Easing since 2009. Quantitative Easing is basically the Fed or Central Bank of a country treating all of its citizens like toddlers and feeding them lots of sugar to get them hyped up. Sugar equals money in this analogy. What happens when you only give your kids sugar? The sugar high is fun for them and then there is a crash that loads of fun for us. The crash is inflation. Some of you guys have heard this analogy from me before because it’s one of my favorites. The first sugar rush lasted from 2008 to 2010. Even in 2010, they kept the Fed Funds rate low….and eventually just went ahead and announced another round of quantitative easing that lasted until June of 2011.

About a year later they got after it again and kept going until October 2014.

Between 2014 and 2020, when the next round of quantitation easing popped up again in response to the pandemic, it wasn’t like they took away the candy jar completely. Heading into the Covid Crisis the Fed Funds rates was only between 1.5% and 1.75% so to lower it - to stimulate the economy - they had to go where? ZERO. And we all remember what happened then.

When you look at it like that, it becomes less shocking that inflation is so sticky.

The Fed has enabled, catered to, fueled the inflation flames since 2008. Now this is not me saying they shouldn’t have done anything to help the economy since then, that is not my point at all. My point is that you can see why we have been able to take down inflation as quickly as we might like. It’s like getting pregnant. It took me 9 months to gain 60 pounds. So it’s going to take time to lose it. Although hopefully inflation won’t follow the same ratio as me in balancing out because I’m 22 months out and not back to where I started….ANYWAY, it took 10 years to build inflation up, so it will take some time to bring it back down. The Fed claimed inflation was transitory all the way up until March of 2022. We are 19 months into the war on inflation.

Circling back to Millennials.

We have an entire generation of Americans who have lived their adult life in an economy stimulated by the government. They have never experienced a completely fair marketplace; they’ve had sugar stimulating them since the onset of their 20’s. This is going to impact their spending habits! This is going to impact the value they put on certain assets, including real estate. So if you are a Millennial wondering why your relationship with money or your journey to homeownership feels different than your parents, this might be why.

A quick prediction on interest rates, because why not close on a dicey note? Bill Ackman, CEO of the $16 billion dollar hedge fund Pershing Square has been betting against bonds since August. His bet, which is known as shorting bonds, has made him millions in profits in this short time. He said there was too much borrowing, too many bonds and so he was going to short Treasuries. But 4 days ago, on Monday, October 23 – he made one very simple tweet. You can read about it here. If he’s right, the economic reports are going to start catching up, a recession will become more obvious and interest rates will cool because investors will come back to bonds. Long story short, he covered his short and it could be some well deserved good news in our space.

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